Evaluation of R&amp;D investments in wind power in Korea using real option

Kim, Kyung‐Taek; Lee, Deok-Joo; Park, Sung‐Joon

doi:10.1016/j.rser.2014.07.165

Cited by 52 publications

(20 citation statements)

References 11 publications

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“…In order to choose the optimal investment timing of energy projects, many scholars have adopted the real option approach, taking into account the management flexibility and various uncertainties [14][15][16][17]. Based on this approach, Zhang [18] and Panteghini [19] studied the effect of taxation on the choice of investment timing with the fixed oilfield investment scale.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

et al. 2018

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This article presents a real option model for helping investors to determine the optimal investment timing and scale of overseas oil projects. The model is suitable for the highly uncertain environments in which many oil companies operate, where they have to suspend upstream investment, stop new oilfield construction, and wait for proper oil prices in order to avoid losses. Considering the uncertainty of oil prices and exchange rates, the results of analytical solutions presented in this paper show the critical oil price that can be seen as the investment threshold for triggering oilfield development as well as the optimal recoverable factor for every oil price level to indicate the optimal investment scale. Results of the case project show the critical oil price, which is 82.32 US dollar per barrel, and the selection of optimal investment scale. The article also demonstrates the impact of investment scale on investment timing in overseas oil projects. The policy implication from the case project is that investment decisions are finitely impacted by geological conditions. Besides, the existence of tax holiday directly contributes to a lower investment threshold. In addition, reducing unit operation cost can obviously enlarge optimal investment scale and initiate oil projects in a relatively low level of investment threshold.

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Section: Literature Reviewmentioning

confidence: 99%

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

et al. 2018

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“…The real options approach has been diversely applied to value the technologies of R&D projects (e.g., Kemna, 1993;Perlitz et al, 1999;Kim et al, 2014). Perlitz et al (1999) provides the application procedures of real option approach to technology valuation of large-scale risky project like a biotechnology development.…”

Section: The Real Options Pricing Approachmentioning

confidence: 99%

Using Real Options Pricing to Value Public R&D Investment in the Deep Seabed Manganese Nodule Project

Choi¹,

Kwak²,

Yoo³

2016

KTIS

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This paper seeks to measure the monetary value of technical development in the deep seabed manganese nodule mining by applying the compound option model (COM). The COM is appropriate for the project in terms of its decision-making structure and embedded uncertainty. The estimation results show that the deep seabed mining project has more economic potential than shown by the previously obtained results from the discounted cash flow (DCF) analysis. In addition, it is reasonable to invest in the project taking the various uncertainty factors into consideration, because the ratio of the value to the cost of the project is far higher than one. This information can be utilized in national ocean policy decision-making.

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“…So far, studies that have used the real option approach to assess the economic value of renewable energy have mainly considered the uncertainty of fossil energy prices [12][13][14][15][16][17][18][19], because renewable energy and fossil energy can be regarded as substitute goods. Davis & Owens [12] estimated the value of renewable energy generation technologies using a continuous real option model considering the price uncertainty of fossil fuels.…”

Section: Introductionmentioning

confidence: 99%

“…Jang et al [15] evaluated the economic value of renewable energy R&D through a real option method which considers not only the uncertainty of fossil energy prices but also the uncertainty of R&D success. Kim et al [16] performed an empirical analysis for measuring the economic value of the investment in wind power energy R&D in Korea and optimal deployment timing of wind power technology by using the real option approach in which a compound option to abandon, deployment, or continue the R&D was considered. Muñoz et al [17] developed a decision-making model for wind energy investments taking into consideration the uncertainty of wind production and electricity prices based on real option analysis to specifically determine the probabilities one should invest, wait, or abandon a given project.…”

Section: Introductionmentioning

confidence: 99%

Real Option Valuation of the R&D Investment in Renewable Energy Considering the Effects of the Carbon Emission Trading Market: A Korean Case

Kim

Lee

2020

Energies

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A carbon market was introduced for the first time in January 2005, when the EU assigned carbon emission allowances to approximately 15,000 enterprises in 25 countries and established a market for emissions trading. In Korea, the carbon emission trading system started from January 2015 with three phases running up to 2025. As many countries have introduced carbon markets, new evaluation models that consider not only fossil energy prices but also carbon emission costs are necessary because additional costs of using fossil energy might have been incurred due to carbon emissions. The purpose of this paper is to develop a real option model that considers not only the uncertainty of existing fossil energy prices, but also the uncertainty of carbon emission rights prices, in evaluating the economic value of renewable energy R&D. Using the real option model, we attempted to assess the effects of the uncertainty of newly appearing carbon markets on the economic value of renewable energy R&D in Korea empirically. Furthermore, we derived an optimal decision path according to the uncertain future situations of fossil energy and carbon markets by analyzing a trinomial lattice model in which the optimal timings of R&D and deployment are identified.

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Evaluation of R&D investments in wind power in Korea using real option

Cited by 52 publications

References 11 publications

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

Using Real Options Pricing to Value Public R&D Investment in the Deep Seabed Manganese Nodule Project

Real Option Valuation of the R&D Investment in Renewable Energy Considering the Effects of the Carbon Emission Trading Market: A Korean Case

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